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San Beda College of Law

30
MEMORY AID IN COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS
CONTRACT OF INSURANCE
 An agreement whereby one undertakes
for a consideration to indemnify another
against loss, damage or liability arising
from an unknown or contingent event.
(Sec. 2, par. 2, IC
“DOING AN INSURANCE BUSINESS OR
TRANSACTING AN INSURANCE
BUSINESS” (Sec. 2, !". 4)
!. "aking or proposing to make, as
insurer, any insurance contract#
2. "aking or proposing to make, as
surety, any contract of suretyship as
a vocation, not as a mere incident to
any other legitimate business of a
surety#
$. %oing any insurance business,
including a reinsurance business#
&. %oing or proposing to do any
business in substance e'uivalent to
any of the foregoing
II. C#ARACTERISTICS OF AN INSURANCE
CONTRACT (The Insurance Code of the
Philippines Annotated, Hector de Leon,
2002 ed.)
!. Consensual ( it is perfected by the
meeting of the minds of the parties.
2. Voluntary ( the parties may
incorporate such terms and
conditions as they may deem
convenient.
$. Aleatory ( it depends upon some
contingent event.
&. nilateral ( imposes legal duties only
on the insurer who promises to
indemnify in case of loss.
). Conditional ( It is sub*ect to
conditions the principal one of which
is the happening of the event
insured against.
+. Contract of inde!nity ( ,-cept life
and accident insurance, a contract
of insurance is a contract of
indemnity whereby the insurer
promises to make good only the loss
of the insured.
". Personal ( each party having in view
the character, credit and conduct of
the other.
RE$UISITES OF A CONTRACT OF
INSURANCE (The Insurance Code of the
Philippines Annotated, Hector de Leon,
2002 ed.)
!. A sub*ect matter which the insured
has an insurable interest.
2. ,vent or peril insured against which
may be any future contingent or
unknown event, past or future and a
duration for the risk thereof.
$. A promise to pay or indemnify in a
fi-ed or ascertainable amount.
&. A consideration known as .premium/.
). "eeting of the minds of the parties.
% CARDINAL PRINCIPLES IN INSURANCE
!. Insurable Interest
2. 0rinciple of 1tmost 2ood 3aith
 An insurance contract re'uires utmost
good faith (u#erri!ae fidei between
the parties. 4he applicant is en*oined to
disclose any material fact, which he
knows or ought to know.
 $eason% An insurance contract is an
aleatory contract. 4he insurer relies on
the representation of the applicant, who
is in the best position to know the state
of his health.
$. Contract of Indemnity
 It is the basis of all property insurance.
4he insured who has insurable interest
over a property is only entitled to
recover the amount of actual loss
sustained and the burden is upon him to
establish the amount of such loss
($e&ie'er on Co!!ercial La',
Professors (undian) and A*uino)
$ules%
a. Applies only to property
insurance e-cept when the
creditor insures the life of his
debtor.
b. 5ife insurance is not a contract
of indemnity.
c. Insurance contracts are not
wagering contracts. (Sec. &
&. Contract of Adhesion (3ine 0rint 6ule
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
31
MEMORY AID IN COMMERCIAL LAW
 "ost of the terms of the contract do
not result from mutual negotiations
between the parties as they are
prescribed by the insurer in final printed
form to which the insured may .adhere/
if he chooses but which he cannot
change. (6i7al Surety and Insurance Co.,
vs. CA, $$+ SC6A !2
). 0rinciple of Subrogation
 It is a process of legal substitution
where the insurer steps into the shoes of
the insured and he avails of the latter8s
rights against the wrongdoer at the time
of loss.
 4he principle of subrogation is a normal
incident of indemnity insurance as a
legal effect of payment# it inures to the
insurer without any formal assignment or
any e-press stipulation to that effect in
the policy. Said right is not dependent
upon nor does it grow out of any private
contract. 0ayment to the insured makes
the insurer a subrogee in e'uity.
("alayan Insurance Co., Inc. v. CA, !+)
SC6A )$+# see also Art. 229:, ;CC
 Purposes% (The Insurance Code of the
Philippines Annotated, Hector de Leon,
2002 ed.)
!. 4o make the person who caused the
loss legally responsible for it.
2. 4o prevent the insured from
receiving a double recovery from the
wrongdoer and the insurer.
$. 4o prevent tortfeasors from being
free from liabilities and is thus
founded on considerations of public
policy.
 $ules%
!. Applicable only to property insurance.
2. 4he insurer can only recover from the
third person what the insured could have
recovered.
$. 4here can be no subrogation in cases<
a. =here the insured by his own act
releases the wrongdoer or third party
liable for the loss or damage#
b. =here the insurer pays the insured the
value of the loss without notifying the
carrier who has in good faith settled
the insured8s claim for loss#
c. =here the insurer pays the insured for
a loss or risk not covered by the policy.
(0an "alayan Insurance Company v.
CA, !>& SC6A )&
d. In life insurance
e. 3or recovery of loss in e-cess of
insurance coverage
CONSTRUCTION OF INSURANCE
CONTRACT
 4he ambiguous terms are to be
construed strictly against the insurer,
and liberally in favor of the insured.
?owever, if the terms are clear, there is
no room for interpretation. (Calanoc vs.
Court of Appeals, @> 0hil. :@
III. DISTINGUIS#ING ELE&ENTS OF AN
INSURANCE CONTRACT
!. 4he insured possesses an insura#le
interest susceptible of pecuniary
estimation#
2. 4he insured is sub*ect to a ris+ of loss
through the destruction or
impairment of that interest by the
happening of designated perils#
$. 4he insurer assu!es that ris+ of loss#
&. Such assumption is part of a )eneral
sche!e to distri#ute actual losses
among a large group or substantial
number of persons bearing somewhat
similar risks# and
). 4he insured makes a ratable
contribution (pre!iu! to a general
insurance fund.
 A contract possessing only the first $
elements above is a ris+,shiftin) de&ice.
If all the elements, it is a ris+,
distri#utin) de&ice. (The Insurance Code
of the Philippines Annotated, Hector de
Leon, 2002 ed.)
I'. PERFECTION OF AN INSURANCE
CONTRACT
 An insurance contract is a consensual
contract and is therefore perfected the
moment there is a meeting of minds with
respect to the ob*ect and the cause or
consideration.
 =hat is being followed in insurance
contracts is what is known as the
-co)nition theory.. 4hus, .an
acceptance made by letter shall not bind
the person making the offer e-cept from
the time it came to his knowledge/.
(,nri'ue7 vs. Sun 5ife Assurance Co. of
Canada, &! 0hil. 2+@
B()*()+ Rece(,
 A mere acknowledgment on behalf of
the company that its branch office had
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
32
MEMORY AID IN COMMERCIAL LAW
received from the applicant the
insurance premium and had accepted
the application sub*ect to processing by
the head office.
Co-e" No,e (A* I),e"(.)
 A concise and temporary written
contract issued to the insurer through its
duly authori7ed agent embodying the
principal terms of an e-pected policy of
insurance.
Purpose% It is intended to give
temporary insurance protection coverage
to the applicant pending the acceptance
or re*ection of his application.
 /uration% ;ot e-ceeding +9 days unless
a longer period is approved by Insurance
Commissioner (Sec. )2.
R(*e"/
 0rinted stipulations usually attached to
the policy because they constitute
additional stipulations between the
parties. (Ang 2iok Chip vs. Springfield,
)+ 0hil. 2:)
 In case of conflict between a rider and
the printed stipulations in the policy, the
rider prevails, as being a more
deliberate e-pression of the agreement
of the contracting parties. (C. Al&endia,
The La' of Insurance in the Philippines,
0123 ed.)
C0!1/e/
 An agreement between the insurer and
the insured on certain matter relating to
the liability of the insurer in case of loss.
(Prof. /e Leon, p.033)
E)*o"/e.e),/
 Any provision added to the contract
altering its scope or application. (Prof.
/e Leon, p.033)
POLIC2 OF INSURANCE
 4he written instrument in which a
contract of insurance is set forth. (Sec.
&@
 Co),e),/3 (Sec. %1)
!. P arties
2. A mount of insurance, e-cept in open
or running policies#
$. R ate of premium#
&. P roperty or life insured#
). Interest of the insured in the
property if he is not the absolute
owner#
+. R isk insured against# and
:. D uration of the insurance.
 Pe"/o)/ e),(,0e* ,o "eco-e" o) ,4e
o0(c5 (/ec. %6)3 4he insurance proceeds
shall be applied e-clusively to the proper
interest of the person in whose name or
to whose benefit it is made, unless
otherwise specified in the policy.
 7()*/3
!. A0,; 0A5ICB ( value of thing insured
is not agreed upon, but left to be
ascertained in case of loss. (Sec. +9
 4he actual loss, as determined,
will represent the total indemnity
due the insured from the insurer
e-cept only that the total indemnity
shall not e-ceed the face value of
the policy. (%evelopment Insurance
Corp. vs. IAC, !&$ SC6A +2
2. CA51,% 0A5ICB ( definite valuation of
the property insured is agreed by both
parties, and written on the face of
policy. (Sec. +!
 In the absence of fraud or
mistake, the agreed valuation will be
paid in case of total loss of the
property, unless the insurance is for
a lower amount.
$. 61;;I;2 0A5ICB ( contemplates
successive insurances and which provides
that the ob*ect of the policy may from
time to time be defined (Sec. +2
'. T2PES OF INSURANCE CONTRACTS
!. Life insurance
a. Individual life (Secs. !:@(!>$, 22:
b. 2roup life (Secs. )9, last par., 22>
c. Industrial life (Secs. 22@(2$!
2. 4on,life insurance
a. "arine (Secs. @@(!++
b. 3ire (Secs. !+:(!:$
c. Casualty (Sec. !:&
$. Contracts of #ondin) or suretyship
(Secs. !:)(!:>
No,e3
!. ?ealth and accident insurance are
either covered under life (Sec. !>9 or
casualty insurance. (Sec. !:&.
2. "arine, fire, and the property aspect
of casualty insurance are also referred to
as property insurance.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
33
MEMORY AID IN COMMERCIAL LAW
'I. PARTIES TO INSURANCE CONTRACT
1. Insurer , 0erson who undertakes to
indemnify another.
 3or a person to be called an
insurance agent, it is necessary
that he should perform the
function for compensation.
(Aisporna vs. CA, !!$ SC6A &)@
2. Insured 8 4he party to be indemnified
upon the occurrence of the loss. ?e must
have capacity to contract, must possess
an insurable interest in the sub*ect of
the insurance and must not be a public
enemy.
 A public enemy, a nation with
whom the 0hilippines is at war
and it includes every citi7en or
sub*ect of such nation.
6. Beneficiary D A person designated to
receive proceeds of policy when risk
attaches.
 6ules in the designation of the
beneficiary<
a. 5I3,
i. A person who insures his o'n
life can designate any person
as his beneficiary, whether
or not the beneficiary has an
insurable interest in the life
of the insured sub*ect to the
limitations under Art. :$@
and Art. 29!2 of the ;CC.
 $eason% in essence, a life
insurance policy is no
different form a civil
donation insofar as the
beneficiary is concerned.
Eoth are founded on the
same consideration of
liberality. (Insular 5ife vs.
,brado, >9 SC6A !>!
ii. A person who insures the life
of another person and name
himself as the beneficiary
must have an insurable
interest in such life. (Sec.
!9
iii. As a general rule, the
designation of a beneficiary
is revocable unless the
insured e-pressly waived the
right to revoke in the policy.
(Sec. !!
iv. 4he interest of a beneficiary
in a life insurance policy
shall be forfeited when the
beneficiary is the principal
accomplice or accessory in
willfully bringing about the
death of the insured in which
event, the nearest relative
of the insured shall receive
the proceeds of said
insurance if not otherwise
dis'ualified. (Sec. !2
b. 06A0,64B
 4he beneficiary of property
insurance must have an insurable
interest in such property, which
must e-ist not only at the time
the policy takes effect but also
when the loss occurs. (Sec. !$
and !>.
E99ec,/ o9 I""e-oc!:0e De/(+)!,(o) O9
Be)e9(c(!"5
 Insured cannot<
!. A ssign the policy
2. T ake the cash surrender value of
the policy
$. A llow his creditors to attach or
e-ecute on the policy#
&. A dd new beneficiary# or
). C hange the irrevocable
designation to revocable, even
though the change is *ust and
reasonable.
 4he insured does not even retain the
power to destroy the contract by
refusing to pay the premiums for the
beneficiary can protect his interest by
paying such premiums for he has an
interest in the fulfillment of the
obligation. (Vance, p. 225, cited in de
Leon, p. 000, 2002 ed.)
'II. INSURABLE INTEREST
A. In General
 A person has an insurable interest in
the sub*ect matter if he is so connected,
so situated, so circumstanced, so
related, that by the preservation of the
same he shall derive pecuniary benefit,
and by its destruction he shall suffer
pecuniary loss, damage or pre*udice.
B. Life
 ,very person has an insurable interest
in the life and health<
a. of himself, of his spouse and of
his children#
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
34
MEMORY AID IN COMMERCIAL LAW
b. of any person on whom he
depends wholly or in part for
education or support#
c. of any person under a legal
obligation to him to pay money
or respecting property or
services, of which death or
illness might delay or prevent
performance# and
d. of any person upon whose life
any estate or interest vested in
him depends. (Sec. !9
 ;4e) (, /4o10* e<(/,3 =hen the
insurance takes effect# not thereafter or
when the loss occurs.
 A.o1),3
6747$AL $L7% 4here is no limit in the
amount the insured can insure his life.
78C7PTI94% In a creditorDdebtor
relationship where the creditor insures
the life of his debtor, the limit of
insurable interest is e'ual to the amount
of the debt.
No,e3 If at the time of the death of the
debtor the whole debt has already been
paid, the creditor can no longer recover
on the policy because the principle of
indemnity applies.
C. Property
 ,very interest in property whether real
or personal, or any relation thereto, or
liability in respect thereof, of such
nature that the contemplated peril
might directly damnify the insured (Sec.
!$, which may consist in<
!. an e-isting interest#
2. any inchoate interest
founded on an e-isting
interest# or
$. an e-pectancy coupled with
an e-isting interest in that
out of which the e-pectancy
arises. (Sec. !&
 ;4e) (, /4o10* e<(/,3 =hen the
insurance takes effect and when the loss
occurs, but need not e-ist in the
meantime.
 A.o1),3 4he measure of insurable
interest in property is the e-tent to
which the insured might be damnified by
loss or in*ury thereof. (Sec. !:
INSURABLE
INT
ER
ES
T
IN
LIF
E
INSURABLE
INTEREST IN
PROPERT2
"ust e-ist only at the
time the policy takes
effect and need not
e-ist at the time of
loss
"ust e-ist at the
time the policy
takes effect and
when the loss
occurs
1nlimited e-cept in
life insurance
effected by creditor
on life of debtor.
5imited to actual
value of interest in
property insured.
4he e-pectation of
benefit to be derived
from the continued
e-istence of life need
not have any legal
basis whatever. A
reasonable
probability is
sufficient without
more.
An e-pectation of a
benefit to be
derived from the
continued
e-istence of the
property insured
must have a legal
basis.
4he beneficiary need
not have an insurable
interest over the life
of the insured if the
insured himself
secured the policy.
?owever, if the life
insurance was
obtained by the
beneficiary, the
latter must have
insurable interest
over the life of the
insured.
4he beneficiary
must have
insurable interest
over the thing
insured.
SPECIAL CASES
0. In case of a carrier or depositary
 A carrier or depository of any kind has
an insurable interest in a thing held by
him as such, to the e-tent of his liability
but not to e-ceed the value thereof
(Sec. !)
2. In case of a !ort)a)ed property
 4he mortgagor and mortgagee each
have an insurable interest in the
property mortgaged and this interest is
separate and distinct from the other.
a. "ortgagor ( As owner, has an
insurable interest therein to the
e-tent of its value, even though the
mortgage debt e'uals such value.
4he reason is that the loss or
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
35
MEMORY AID IN COMMERCIAL LAW
destruction of the property insured
will not e-tinguish the mortgage
debt.
b. "ortgagee ( ?is interest is only up
to the e-tent of the debt. Such
interest continues until the mortgage
debt is e-tinguished.
 4he lessor cannot be validly a
beneficiary of a fire insurance policy
taken by a lessee over his merchandise,
and the provision in the lease contract
providing for such automatic assignment
is void for being contrary to law and
public policy. (Cha vs. Court of Appeals,
22: SC6A +@9
STANDARD OR
UNION
&ORTGAGE
CLAUSE
OPEN OR LOSS
PA2ABLE
&ORTGAGE
CLAUSE
Subse'uent acts
of the mortgagor
cannot affect the
rights of the
assignee
Acts of the
mortgagor affect
the mortgagee.
$eason%
"ortgagor does
not cease to be a
party to the
contract. (Secs. >
and @
E99ec,/ o9 Lo// P!5!:0e C0!1/e
a. 4he contract is deemed to be upon
the interest of the mortgagor# hence, he
does not cease to be a party to the
contract.
b. Any act of the mortgagor prior to the
loss, which would otherwise avoid the
insurance affects the mortgagee even if
the property is in the hands of the
mortgagee.
c. Any act, which under the contract of
insurance is to be performed by the
mortgagor, may be performed by the
mortgagee with the same effect.
d. In case of loss, the mortgagee is
entitled to the proceeds to the e-tent of
his credit.
e. 1pon recovery by the mortgagee to
the e-tent of his credit, the debt is
e-tinguished.
 In case a mortgagee insures his own
interest and a loss occurs, he is entitled
to the proceeds of the insurance but he
is not allowed to retain his claim against
the mortgagor as the claim is discharged
but it passes by subrogation to the
insurer to the e-tent of the money paid
by such insurer. (0alileo vs. Cosio
'III. RIS7
 =hat may be insured against<
!. 3uture contingent event resulting in
loss or damage ( ,-. 0ossible future
fire
2. 0ast unknown event resulting in loss
or damage ( ,-. 3act of past sinking
of a vessel unknown to the parties
$. Contingent liability ( ,-. 6einsurance
I=. PRE&IU& PA2&ENTS
 Consideration paid an insurer for
undertaking to indemnify the insured
against a specified peril.
 Easis of the right of the insurer to
collect premiums< Assumption of risk.
6747$AL $L7% ;o policy issued by an
insurance company is valid and binding
until actual payment of premium. Any
agreement to the contrary is void. (Sec.
::
78C7PTI94(%
!. In case of life or industrial life
insurance, when the grace periods
applies# (Sec. ::
2. =hen the insurer makes a written
acknowledgment of the receipt
premium# (Sec. :>
$. Section :: may not apply if the
parties have agreed to the payment
of the premium in installments and
partial payment has been made at
the time of the loss. ("akati
4uscany Condominium Corp. v. CA,
2!) SC6A &+2
&. =here a credit term has been
agreed upon. (1C0E vs. "asagana
4elemart, $9> SC6A 2)@
). =here the parties are barred by
estoppel. (1C0E vs. "aagana
4elemart, $)+ SC6A $9:

 Section :: merely precludes the
parties from stipulating that the policy is
valid even if the premiums are not paid.
("akati 4uscany Condominium Corp. v.
CA, 2!) SC6A &+2
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
3
MEMORY AID IN COMMERCIAL LAW
E99ec, o9 Ac>)o?0e*+.e), o9 Rece(,
o9 P"e.(1. () Po0(c53 Conclusi&e
e&idence of its payment, so far as to
make the policy binding, notwithstanding
any stipulation therein that it shall not
be binding until the premium is actually
paid. (Sec. :>
ENTITLE&ENT OF INSURED TO RETURN
OF PRE&IU&S PAID
A. :hole%
!. If the thing insured was never
e-posed to the risks insured
against# (Sec. :@
2. If contract is voidable due to the
fraud or misrepresentation of
insurer or his agents# (Sec. >!
$. If contract is voidable because of
the e-istence of facts of which
the insured was ignorant without
his fault# (Sec. >!
&. =hen by any default of the
insured other than actual fraud,
the insurer never incurred
liability# (Sec. >!
). =hen rescission is granted due to
the insurer8s breach of contract.
(Sec. :&
E. Pro rata%
!. =hen the insurance is for a
definite period and the insured
surrenders his policy before the
termination thereof#
 ,-ceptions<
a. policy not made for a
definite period of time
b. short period rate is
agreed upon
c. life insurance policy
2. =hen there is overDinsurance
(Sec. >2#
I)/,!)ce/ ?4e) "e.(1./ !"e )o,
"eco-e"!:0e3
!. =hen the risk has already
attached and the risk is entire and
indivisible.
2. In life insurance.
$. =hen the contract is rescindable
or rendered void ab initio by the
fraud of the insured.
&. =hen the contract is illegal and
the parties are in pari delicto.
PRE&IU& ASSESS&ENT
5evied and paid to
meet anticipated
losses.
Collected to meet
actual losses.
0ayment is not
enforceable against
the insured.
0ayment is
enforceable once
levied unless
otherwise agreed
upon.
;ot a debt. It becomes a debt
once properly levied
unless otherwise
agreed.
=. TRANSFER OF POLIC2
1. Life Insurance
 It can be transferred even without the
consent of the insurer e-cept when there
is a stipulation re'uiring the consent of
the insurer before transfer. (Sec. !>!
 $eason% 4he policy does not represent
a personal agreement between the
insured and the insurer.
2. Property insurance
 It cannot be transferred without the
consent of the insurer.
 $eason% 4he insurer approved the
policy based on the personal
'ualification and the insurable interest
of the insured.
3. Casualty insurance
 It cannot be transferred without the
consent of the insurer. (Paterson cited
in de Leon p. 32)
 $eason< 4he moral ha7ards are as great
as those of property insurance.
C#ANE OF INTEREST IN T#E T#ING
INSURED
 4he mere (absolute transfer of the
thing insured does not transfer the
policy, but suspends it until the same
person becomes the owner of both the
policy and the thing insured. (Sec. )>
 $eason< Insurance contract is personal.
6747$AL $L7% A change of interest in
any part of a thing insured
unaccompanied by a corresponding
change of interest in the insurance
suspends the insurance to an e'uivalent
e-tent, until the interests in the thing
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
3!
MEMORY AID IN COMMERCIAL LAW
and the interest in the insurance are
vested in the same person. (Sec. 29
78C7PTI94(%
!. In life, health and accident
insurance.(Sec. 29#
2. Change in interest in the thing
insured after occurrence of an
in*ury which results in a loss.
(Sec. 2!#
$. Change in interest in one or
more of several distinct things
separately insured by one policy.
(Sec. 22#
&. Change of interest, by will or
succession, on the death of the
insured. (Sec. 2$#
). 4ransfer of interest by one of
several partners, *oint owners,
or owners in common, who are
*ointly insured, to others. (Sec.
2&#
+. =hen a policy is so framed that
it will inure to the benefit of
whomsoever, during the
continuance of the risk, may
become the owner of the
interest insured. (Sec. ):#
:. =hen there is an e-press
prohibition against alienation in
the policy, in case of alienation,
the contract of insurance is not
merely suspended but avoided.
(Art. !$9+, ;CC.
=I. ASCERTAIN&ENT AND CONTROL OF
RIS7 AND LOSS
A. Fo1" P"(.!"5 Co)ce")/ o9 ,4e
P!",(e/3
!. Correct estimation of the risk#
2. 0recise delimitation of the risk#
$. Control of the risk#
&. %etermining whether a loss occurred
and if so, the amount of such loss.
B. De-(ce/ 1/e* 9o" !/ce",!()()+ !)*
co),"o00()+ "(/> !)* 0o//3
1. Co)ce!0.e), ( A neglect to
communicate that which a party knows
and ought to communicate (Sec. 2+
 6e'uisites<
a. A party knows a fact which he
neglects to communicate or
disclose to the other.
b. Such party concealing is duty
bound to disclose such fact to
the other.
c. Such party concealing makes no
warranty as to the fact
concealed.
d. 4he other party has not the
means of ascertaining the fact
concealed.
e. "aterial
 ,ffects< ,ntitles insurer to rescind,
even if the death or loss is due to a
cause not related to the concealed
matter (Sec. 2:.
No,e3 2ood 3aith is not a defense in
concealment. Sec. 2: clearly provides
that, .the concealment whether
intentional or unintentional entitles the
in*ured party to rescind the contract of
insurance./
Te/, o9 &!,e"(!0(,53 %etermined not by
the event, but solely by the probable
and reasonable influence of the facts
upon the party to whom the
communication is due, in forming his
estimate of the advantages of the
proposed contract, or in making his
in'uiries (Sec. $!.
 ,-ception to Sec. $!<
a. Incontestability clause
b. "atters under Sec.!!9 (marine
insurance
 4he waiver of medical e-amination in
a nonDmedical insurance contract
renders even more material the
information re'uired of the applicant
concerning the previous conditions of
health and diseases suffered. (Sunlife v.
Sps. Eacani, 2&+ SC6A 2+>.
 4he right to information of material
facts may be waived, either by the terms
of the insurance or by neglect to make
in'uiries as to such facts where they are
distinctly implied in other facts of which
information is communicated. (Sec.$$
 =here matters of opinion or *udgment
are called for, answers made in good
faith and without intent to deceiver will
not avoid the policy even though they
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
3"
MEMORY AID IN COMMERCIAL LAW
are untrue. $eason% 4he insurer cannot
rely on those statements. ?e must make
further in'uiry. (0hilamcare ?ealth
Systems vs. CA, 2.6. ;o. !2)+:>, "arch
!>, 2992.
2. Re"e/e),!,(o)/ ( 3actual
statements made by the insured at the
time of, or prior to, the issuance of the
policy to give information to the insurer
and induce him to enter into the
insurance contract. 4hey are considered
an active form of concealment.
 6e'uisites of a false representation
(misrepresentation<
a. 4he insured stated a fact which
is untrue.
b. Such fact was stated with
knowledge that it is untrue and
with intent to deceive or which
he states positively as true
without knowing it to be true
and which has a tendency to
mislead.
c. Such fact in either case is
material to the risk.
 Characteristics<
a. It is not a part of the contract but
merely a collateral inducement to it.
b. It may be oral or written.
c. It is made at the same time of issuing
the policy or before but not after.
d. It may be altered or withdrawn before
the insurance is effected but not
afterwards.
e. It always refers to the date the
contract goes into effect.
 Finds<
a. A33I6"A4IC, ( affirmation of a fact
when the contract begins# and
b. 06A"ISSA6B ( promise to be
performed after policy was issued.
 ,ffect of "isrepresentation< the in*ured
party is entitled to rescind from the time
when the representation becomes false.
Te/, o9 &!,e"(!0(,53 Same as that in
concealment.
 =here the insured merely signed the
application form and made the agent of
the insurer fill the same for him, it was
held that by doing so, the insured made
the agent of the insurer his own agent
and he was responsible for his acts for
that purpose. (Insular 5ife Assur. Co. vs.
3eliciano, :& 0hil. &+@
6. ;!""!),(e/ ( Statement or promise
by the insured set forth in the policy or
by reference incorporated therein, the
untruth or nonDfulfillment of which in
any respect, and without reference to
whether insurer was in fact pre*udiced
by such untruth or nonDfulfillment,
renders the policy voidable by the
insurer.
 0urpose< 4o eliminate potentially
increasing ha7ards which may either be
due to the acts of the insured or to the
change to the condition of the property.
 Finds<
a. ,G06,SS ( an agreement e-pressed in
a policy whereby the insured stipulates
that certain facts relating to the risk are
or shall be true, or certain acts relating
to the same sub*ect have been or shall
be done.
b. I"05I,% 8 it is deemed included in the
contract although not e-pressly
mentioned. ,-ample< In marine
insurance, seaworthiness of the vessel.
 ,ffects of breach of warranty<
a. "aterial
6747$AL $L7% Ciolation of material
warranty or of a material provision of a
policy will entitle the other party to
rescind the contract. (Sec. :&
78C7PTI94(%
a. 5oss occurs before the time of
performance of the warranty.
b. 4he performances becomes
unlawful at the place of the
contract.
c. 0erformance becomes
impossible. (Sec. :$
b. Immaterial (e-. Ather insurance
clause
6747$AL $L7% It will not avoid the
policy.
78C7PTI94% =hen the policy e-pressly
provides or declares that a violation
thereof will avoid it. (Sec. :)
;ARRANT2 REPRESENTATION
0art of the contract "ere collateral
inducement
=ritten on the
policy, actually or by
reference
"ay be written in
the policy or may
be oral.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
3#
MEMORY AID IN COMMERCIAL LAW
0resumed material "ust be proved to
be material
"ust be strictly
complied with
6e'uires only
substantial truth
and compliance
4. Co)*(,(o)/ ( ,vents signifying in its
broadest sense either an occurrence or a
nonDoccurrence that alters the
previously e-isting legal relations of the
parties to the contract. 4hey may be
conditions precedent or conditions
subse'uent.
 ,ffect of breach<
a. Condition precedent ( prevents
the accrual of cause of action
b. Condition subse'uent ( avoids
the policy or entitles the insurer
to rescind
 4he insurer may also protect himself
against fraudulent claims of loss and this
he attempts to do by inserting in the
policy various conditions which take the
form of conditions precedent. 3or
instance, there are conditions re'uiring
immediate notice of loss or in*ury and
detailed proofs of loss within a limited
period.
%. E<ce,(o)/ ( 0rovisions that may
specify e-cepted perils. It makes more
definite the coverage indicated by the
general description of the risk by
e-cluding certain specified risk that
otherwise would be included under the
general language describing the risks
assumed.
 ,ffect< 5imit the coverage of the
contract.
RESCISSION
 G"o1)*/3
A. Concealment
E. "isrepresentation
C. Ereach of material warranty
%. Ereach of a condition subse'uent
 ;!(-e" o9 ,4e "(+4, ,o "e/c()*3
Acceptance of premium payments
despite the knowledge of the ground for
rescission. (Sec. &)
 L(.(,!,(o)/ o) ,4e "(+4, o9 ,4e ()/1"e"
,o "e/c()*3
!. 4on,life ( such right must be
e-ercised prior to the commencement of
an action on the contract#
2. Life ( such right must be availed of
during the first two years from the date
of issue of policy or its last
reinstatement# prior to
.incontestability./ (Sec. &>
CANCELLATION OF NON8LIFE
INSURANCE POLIC2
 6ight of the insurer to abandon the
contract on the occurrence of certain
grounds after the effectivity date of a
nonDlife policy.
 G"o1)*/3
1. N onDpayment of premium#
2. C onviction of a crime out of acts
increasing the ha7ard insured
against#
6. D iscovery of fraud or material
misrepresentation#
4. D iscovery of willful or reckless acts
of omissions increasing the ha7ard
insured against#
%. P hysical changes in property making
the property uninsurable# and
6. D etermination by the Insurance
Commissioner that the continuation
of the policy would violate the
Insurance Code. (Sec. +&
 Re@1("e.e),/3
1. 0rior notice of cancellation to
the insured#
2. ;otice must be in writing,
mailed or delivered to the
named insured at the address
shown in the policy#
3. ;otice must state which of the
grounds set forth in Sec. +& is
relied upon and upon re'uest of
the insured, the insurer must
furnish facts on which the
cancellation is based#
4. 2rounds should have e-isted
after the effectivity date of the
policy.
=II. INCONTESTABILIT2 CLAUSE
 Clause in life insurance policy that
stipulates that the policy shall be
incontestable after a stated period.
 Re@1(/(,e/3
!. 5ife insurance policy
2. 0ayable on the death of the insured
$. It has been in force during the
lifetime of the insured for a period
of at least two years from the date
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
40
MEMORY AID IN COMMERCIAL LAW
of its issue or of its last
reinstatement
No,e< 4he period of 2 years may be
shortened but it cannot be e-tended by
stipulation.
 Incontestability only deprives the
insurer of those defenses which arise in
connection with the formation and
operation of the policy prior to loss.
(Prof. /e Leon, p. 0"; citin) :yatt and
:yatt, p. 3"3)
BARRED
DEFENSES
OF T#E INSURER
DEFENSES NOT
BARRED
!. 0olicy is void ab
initio
2. 0olicy is
rescindable by
reason of the
fraudulent
concealment or
misrepresentation of
the insured or his
agent
!. 4hat the person
taking the insurance
lacked insurable
interest as re'uired
by law#
2. 4hat the cause of
the death of the
insured is an
e-cepted risk#
$. 4hat the
premiums have not
been paid (Secs. ::,
22:HbI, 22>HbI,
2$9HbI#
&. 4hat the
conditions of the
policy relating to
military or naval
service have been
violated (Secs.
22:HbI, 22>HbI#
). 4hat the fraud is
of a particularly
vicious type#
+. 4hat the
beneficiary failed to
furnish proof of
death or to comply
with any condition
imposed by the
policy after the loss
has happened# or
:. 4hat the action
was not brought
within the time
specified.
=III.
A. O'ER8INSURANCE A results when the
insured insures the same property for an
amount greater than the value of the
property with the same insurance
company.
 E99ec, () c!/e o9 0o//3
!. 4he insurer is bound only to pay to
the e-tent of the real value of the
property lost#
2. 4he insured is entitled to recover the
amount of premium corresponding to
the e-cess in value of the property#
B. DOUBLE INSURANCE A e-ists where
same person is insured by several
insurers separately in respect to same
sub*ect and interest. (Sec. @$
 Re@1(/(,e/3
!. 0erson insured is the same#
2. 4wo or more insurers insuring
separately#
$. Sub*ect matter is the same#
&. Interest insured is also the same#
). 6isk or peril insured against is
likewise the same.
 E99ec,/3 =here double insurance is
allowed, but over insurance results<
(Sec. @&
!. 4he
insured, unless the policy otherwise
provides, may claim payment from
the insurers in such order as he may
select, up to the amount for which
the insurers are severally liable
under their respective contracts#
2. =here
the policy under which the insured
claims is a valued policy, the insured
must give credit as against the
valuation for any sum received by
him under any other policy without
regard to the actual value of the
sub*ect matter insured#
$. =here
the policy under which the insured
claims is an unvalued policy he must
give credit, as against the full
insurable value, for any sum
received by him under any policy#
&. =here
the insured receives any sum in
e-cess of the valuation in the case of
valued policies, or of the insurable
value in the case of unvalued
policies, he must hold such sum in
trust for the insurers, according to
their right of contribution among
themselves#
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
41
MEMORY AID IN COMMERCIAL LAW
). ,ach
insurer is bound, as between himself
and the other insurers, to contribute
ratably to the loss in proportion to
the amount for which he is liable
under his contract.
A**(,(o)!0 o" “O,4e" I)/1"!)ce” C0!1/e
 A condition in the policy re'uiring the
insured to inform the insurer of any
other insurance coverage of the property
insured. It is lawful and specifically
allowed under Sec. :) which provides
that .(a policy may declare that a
violation of a specified provision thereof
shall avoid it, otherwise the breach of an
immaterial provision does not avoid it./
 A stipulation against double insurance.
 0urposes<
!. 4o prevent an increase in the
moral ha7ard
2. 4o prevent overDinsurance and
fraud.
 4o constitute a violation of the
clause, there should have been double
insurance.
C. REINSURANCE ( a contract by which
the insurer procures a third person to
insure him against loss or liability by
reason of an original insurance (also
known as -$einsurance Cession.. (Sec.
@)
 In every reinsurance, the original
contract of insurance and the contract of
reinsurance are covered by separate
policies.
DOUBLE
INSURANCE
REINSURANCE
Involves the same
interest
Involves different
interest
Insurer remains in
such capacity
Insurer becomes the
insured in relation
to reinsurer
Insured is the party
in interest in the 2
contracts
Ariginal insured has
no interest in the
reinsurance
contract.
Sub*ect of
insurance is
property
Sub*ect of insurance
is the original
insurer8s risk
Insured has to give
his consent
Insured8s consent
not necessary
TER&S3
1. Re()/1"!)ce ,"e!,5 A "erely an
agreement between two insurance
companies whereby one agrees to cede
and the other to accept reinsurance
business pursuant to provisions specified
in the treaty. (Prof. /e Leon, p. ;02)
2. A1,o.!,(c "e()/1"!)ce ( 4he
reinsured is bound to cede and the
reinsurer is obligated to accept a fi-ed
share of the risk which has to be
reinsured under the contract. (Prof. /e
Leon, p. ;05)
6. F!c10,!,(-e "e()/1"!)ce ( 4here is no
obligation to cede or accept
participation in the risk each party
having a free choice. Eut once the share
is accepted, the obligation is absolute
and the liability thereunder can be
discharged only by payment. (,'uitable
Ins. J Casualty Co. vs. 6ural Ins. J
Surety Co., Inc. & SC6A $&$
4. Re,"oce//(o) ( A transaction whereby
the reinsurer in turn, passes to another
insurer a portion of the risk reinsured. It
is really the reinsurance of reinsurance.
(Prof. /e Leon, p. ;05)
=I'.
A. LOSS, IN INSURANCE
 In*ury or damage sustained by the
insured in conse'uence of the happening
of one or more of the accidents or
misfortune against which the insurer, in
consideration of the premium, has
undertaken to indemnify the insured.
(Eonifacio Eros. Inc. vs. "ora, 29 SC6A
2+!
Lo// 9o" ?4(c4
()/1"e" (/ 0(!:0e
Lo// 9o" ?4(c4
()/1"e" (/ )o,
0(!:0e
!. 5oss the
pro-imate cause of
which is the peril
insured against
(Sec. >&#
2. 5oss the
immediate cause of
which is the peril
insured against
e-cept where
pro-imate cause is
an e-cepted peril#
$. 5oss through
negligence of
!. 5oss by
insured8s willful
act#
2. 5oss due to
connivance of the
insured (Sec. >:#
and
$. 5oss where the
e-cepted peril is
the pro-imate
cause.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
42
MEMORY AID IN COMMERCIAL LAW
insured e-cept
where there was
gross negligence
amounting to willful
acts# and
&. 5oss caused by
efforts to rescue the
thing from peril
insured against#
). If during the
course of rescue,
the thing is e-posed
to a peril not
insured against,
which permanently
deprives the insured
of its possession, in
whole or in part
(Sec. >).
P"o<(.!,e C!1/e ( An event that sets all
other events in motion without any
intervening or independent case, without
which the in*ury or loss would not have
occurred.
RE$UISITES FOR RECO'ER2 UPON
INSURANCE
!. 4he insured must have insurable
interest in the sub*ect matter#
2. 4hat interest is covered by the policy#
$. 4here must be a loss# and
&. 4he loss must be pro-imately caused
by the peril insured against.
NOTICE OF LOSS
I) 9("e ()/1"!)ce I) o,4e" ,5e/ o9
()/1"!)ce
6e'uired ;ot re'uired
3ailure to give
notice will defeat
the right of the
insured to recover.
3ailure to give
notice will not
e-onerate the
insurer, unless
there is a
stipulation in the
policy re'uiring the
insured to do so.
B. CLAI&S SETTLE&ENT
 4he indemnification of the loss of the
insured.
TI&E FOR PA2&ENT OF CLAI&S
LIFE POLICIES
NON8LIFE
POLICIES
a. <aturin)
upon the
e=piration of the
ter! ( 4he
proceeds are
immediately
payable to the
insured, unless
they are made
payable in
installments or as
annuity, in which
case, the
installments or
annuities shall be
paid as they
become due.
b. <aturin) at
the death of the
insured, occurrin)
prior to the
e=piration of the
ter! stipulated (
4he proceeds are
payable to the
beneficiaries
within +9 days
after presentation
and filing of proof
of death.
4he proceeds shall
be paid within $9
days after the
receipt by the
insurer of proof of
loss, and
ascertainment of
the loss or damage
by agreement of the
parties or by
arbitration but not
later than @9 days
from such receipt of
proof of loss
whether or not
ascertainment is
had or made.
 In case of an unreasonable delay in
the payment of the insured8s claim by
the insurer, the insured can recover< !
attorney8s fees# 2 e-penses incurred by
reason of the unreasonable withholding#
$ interest at double the legal interest
rate fi-ed by the "onetary Eoard# and &
the amount of the claim. (Kenith
Insurance Corp. vs. CA, !>) SC6A $@>
='. PRESCRIPTI'E PERIOD (Sec/. 66 B
6C4)
 $ules%
!. In the absence of an e-press
stipulation in the policy, it being based
on a written contract, the action
prescribes in !9 years.
2. ?owever the parties may validly agree
on a shorter period provided it is not less
than one year from the time the cause of
action accrues.
$. 4he cause of action accrues from the
re>ection of the clai! of the insured and
not from the time of loss.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
43
MEMORY AID IN COMMERCIAL LAW
It shall commence from the denial of
the claim, not from the resolution of the
motion for reconsideration, otherwise it
can be used by the insured as a scheme
or device to waste time until the
evidence which may be used against him
is destroyed. (Sun Insurance Affice, 5td.
v. CA, !@) SC6A
&. In C"C5I, the written notice of claim
must be filed within + months from the
date of the accident otherwise the claim
is deemed waived. 4he suit for damages
either with the proper court or with the
Insurance Commissioner should be filed
within ! year from the date of the denial
of the claim by the insurer, otherwise
claimant8s right of action shall prescribe.
(Sec. $>&
PARTICULAR 7INDS OF INSURANCE
CONTRACTS
='I. &ARINE INSURANCE
 Insurance against risks connected with
navigation, to which a ship, cargo,
freightage, profits or other insurable
interest in movable property, may be
e-posed during a certain voyage or a
fi-ed period of time. (Sec. @@
 Co-e"!+e3
A.
!. Cessels, goods, freight, cargo,
merchandise, profits, money,
valuable papers, bottomry and
respondentia, and interest in respect
to all risks or perils of navigation#
2. 0ersons or property in connection
with marine insurance#
$. 0recious stones, *ewels, *ewelry and
precious metals whether in the
course of transportation or
otherwise# and
&. Eridges, tunnels, piers, docks and
other aids to navigation and
transportation. (Sec. @@
 Cargo can be the sub*ect of
marine insurance, and once it is
entered into, the implied
warranty of seaworthiness
immediately attaches to
whoever is insuring the cargo,
whether he be the shipowner or
not. (6o'ue v. IAC, !$@ SC6A
)@+
E. "arine 0rotection and Indemnity
Insurance
 C0!//e/ o9 ()0!)* .!"()e ()/1"!)ce3
(Prof. /e Leon, p. ;25)
!. Property in transit ( provides
protection to property
fre'uently e-posed to loss while
it is transportation form one
location to another.
2. ?ailee lia#ility , insurance for
those who have temporary
custody of the goods.
$. @i=ed transportation property A
they are so insured because they
are held to be an essential part
of the transportation system
such as bridges, tunnels, etc.
&. @loater A provides insurance to
follow the insured property
wherever it may be located,
sub*ect always to the territorial
limits of the contract.
 I)/1"!:0e (),e"e/,3
A.
0.(hipo'ner
a. Aver the vessel to the
e-tent of its value, e-cept
that if chartered, the
insurance is only up to the
amount not recoverable
from the charterer. (Sec.
!99.
b. ?e also has an insurable
interest on e-pected
freightage. (Sec. !9$.
c. ;o insurable interest if he
will be compensated by
charterer for the value of
the vessel, in case of loss.
2. Car)o o'ner
 Aver the cargo and e-pected
profits (Sec. !9).
;. Charterer
 Aver the amount he is liable to
the shipowner, if the ship is lost
or damaged during the voyage
(Sec. !9+.
E.
In loans on bottomry and respondentia
 6epayment of the loan is sub*ect to the
condition that the vessel or goods,
respectively, given as a security, shall
arrive safely at the port of destination.
0. 9'nerB/e#tor
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
44
MEMORY AID IN COMMERCIAL LAW
 %ifference between the value
of vessel or goods and the
amount of loan. (Sec. !9!
2. CreditorBlender
 Amount of the loan
No,e3 If a vessel is hypothecated by
bottomry, only the e-cess is insurable,
since a loan on bottomry partakes of the
nature of an insurance coverage to the
e-tent of the loan accommodation. The
sa!e rule 'ould apply to the
hypothecation of the car)o #y
respondentia. (Pandect of Co!!ercial
La' and Curisprudence, Custice Cose
Vitu), 011" ed.)
PERILS OF T#E
SEA
PERILS OF T#E
S#IP
Includes only those
casualties due to
the<
!. unusual
violence# or
2. e-traordinary
action of wind and
wave# or
$. Ather
e-traordinary causes
connected with
navigation.
A loss which in the
ordinary course of
events, results
from the<
!. natural and
inevitable action of
the sea
2. ordinary wear
and tear of the ship
or
$. ;egligent
failure of the ship8s
owner to provide
the vessel with
proper e'uipment
to convey the cargo
under ordinary
conditions.
No,e< It is only perils of the sea which
may be insured against unless perils of
the ship is covered by an allDrisk policy.
SPECIAL &ARINE INSURANCE
CONTRACTS AND CLAUSES
A. A00 R(/>/ Po0(c5 ( insurance against all
causes of conceivable loss or damage,
e-cept< ! as otherwise e-cluded in the
policy# or 2 due to fraud or intentional
misconduct on the part of the insured.
 4he insured has the initial burden of
proving that the cargo was in good
condition when the policy attached and
that the cargo was damaged when
unloaded from the vessel# thereafter,
the burden then shifts to the insurer to
show the e-ception to the coverage.
(3ilipinas "erchants Insurance vs. Court
of Appeals, !:@ SC6A +$>
B. B!""!,"5 C0!1/e
 A clause which provides that there can
be no recovery on the policy in case of
any willful misconduct on the part of the
master or crew in pursuance of some
unlawful or fraudulent purpose without
consent of owners, and to the pre*udice
of the owner8s interest. (6o'ue vs. IAC,
!$@ SC6A )@+
C. I)c4!.!"ee C0!1/e
 A clause which makes the insurer liable
for loss or damage to the hull or
machinery arising from the<
!. ;egligence of the captain,
engineers, etc.
2. ,-plosions, breakage of shafts# and
$. 5atent defect of machinery or hull.
(?ar $e&ie' <aterials in Co!!ercial
La', Cor)e <ira&ite, 2002 ed.)
D. S1e !)* L!:o" C0!1/e
 A clause under which the insurer may
become liable to pay the insured, in
addition to the loss actually suffered,
such e-penses as he may have incurred
in his efforts to protect the property
against a peril for which the insurer
would have been liable. (Sec. !+$

&ATTERS ALT#OUG# CONCEALED, ;ILL
NOT 'ITIATE T#E CONTRACT E=CEPT
;#EN T#E2 CAUSED T#E LOSS (Sec.
110)
!. ;ational character of the insured#
2. 5iability of the thing insured to
capture or detention#
$. 5iability to sei7ure from breach of
foreign laws#
&. =ant of necessary documents# and
). 1se of false or simulated papers.
No,e3 4his should be related to the
general rule regarding material
concealment.
DISTINCTIONS ON CONCEAL&ENT
(Co!!ercial La' $e&ie'er, A.@.
A)#ayani, 0133 ed.)
&ARINE INSURANCE OT#ER
PROPERT2
INSURANCE
4he information of the
belief or e-pectation
of $
rd
persons is
4he information or
belief of a $
rd
party
is not material and
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
45
MEMORY AID IN COMMERCIAL LAW
material and must be
communicated
need not be
communicated
unless it proceeds
form an agent of
the insured whose
duty it is to give
information
4he concealment of
any fact in relation to
any of the matters
stated in Sec. !!9
does not vitiate the
entire contract but
merely e-onerates the
insurer from a risk
resulting from the fact
concealed
Concealment of any
material fact will
vitiate the entire
contract, whether
or not the loss
results for the risk
concealed.
I&PLIED ;ARRANTIES
!. Seaworthiness of the ship at the
inception of the insurance (Sec.
!!$#
2. Against improper deviation (Sec.
!2$, !2&, !2)#
$. Against illegal venture#
&. =arranty of neutrality< the ship will
carry the re'uisite documents of
nationality or neutrality of the ship
or cargo where such nationality or
neutrality is e=pressly warranted#
(Sec. !29
). 0resence of insurable interest.
 =hile the payment by the insurer for
the insured value of the lost cargo
operates as a waiver of the insurer8s
right to enforce the term of the implied
warranty against the assured under the
marine insurance policy, the same
cannot be validly interpreted as an
automatic admission of the vessel8s
seaworthiness by the insurer as to
foreclose recourse against the common
carrier for any liability under the
contractual obligation as such common
carrier. (%elsan 4ransportation 5ines vs.
CA, $+& SC6A 2&
Se!?o",4()e//
 A relative term depending upon the
nature of the ship, voyage, service and
goods, denoting in general a ship8s
fitness to perform the service and to
encounter the ordinary perils of the
voyage, contemplated by the parties to
the policy (Sec. !!&.
6747$AL $L7% 4he warranty of
seaworthiness is complied with if the
ship be seaworthy at the time of the
commencement of the risk. 0rior or
subse'uent unseaworthiness is not a
breach of the warranty nor is it material
that the vessel arrives in safety at the
end of her voyage.
78C7PTI94(%
!. In the case of a time policy, the ship
must be seaworthy at the
commencement of every voyage she
may undertake
2. In the case of cargo policy, each
vessel upon which the cargo is
shipped or transshipped, must be
seaworthy at the commencement of
each particular voyage
$. In the case of a voyage policy
contemplating a voyage in different
stages, the ship must be seaworthy
at the commencement of each
portion
 A0(c!:(0(,5 o9 (.0(e* ?!""!),5 o9
/e!?o",4()e// ,o c!"+o o?)e"/3 It
becomes the obligation of a cargo owner
to look for a reliable common carrier,
which keeps its vessels in seaworthy
conditions. 4he shipper may have no
control over the vessel but he has
control in the choice of the common
carrier that will transport his goods
(6o'ue v. IAC, !$@ SC6A )@+.
De-(!,(o)
 A departure from the course of the
voyage insured, or an unreasonable delay
in pursuing the voyage or the
commencement of an entirely different
voyage. (Sec.!2$
 Instances<
!. %eparture of vessel from the
course of the sailing fi-ed by
mercantile usage
2. %eparture of vessel from the
most natural, direct and
advantageous route if not fi-ed
by mercantile usage
$. 1nreasonable delay in pursuing
voyage
&. Commencement of an entirely
different voyage (Secs. !2!D!2$
 Finds<
!. 0roper D
a. =hen caused by circumstances outside
the control of the ship captain or ship
owner#
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
4
MEMORY AID IN COMMERCIAL LAW
b. =hen necessary to comply with a
warranty or to avoid a peril#
c. =hen made in good faith to avoid a
peril#
d. =hen made in good faith to save
human life or to relieve another vessel
in distress (Sec. !2&
 ,ffect< In case of loss, the
insurer is still liable.
2. Improper D ,very deviation not
specified in Sec. !2& (Sec. !2).
 ,ffect< In case of loss or
damage, the insurer is not liable.
(Sec. !2+
LOSS
!. Total%
a. Actual D
i. 4otal destruction#
ii. Irretrievable loss by sinking#
iii. %amage rendering the thing
valueless# or
iv. 4otal deprivation of owner of
possession of thing insured.
(Sec. !$9
b. Constructive D
i. Actual loss of more than L
of the value of the ob*ect#
ii. %amage reducing value by
more than L of the value of
the vessel and of cargo# and
iii. ,-pense of transshipment
e-ceed L of value of cargo.
(Sec. !$!, in relation to Sec.
!$@
 In case of constructive
total loss, insured may<
!. Abandon goods or
vessel to the insurer and
claim for whole insured
value (Sec. !$@, or
2. =ithout abandoning
vessel, claim for partial
actual loss. (Sec. !))
2. Partial% 4hat which is not total (Sec.
!2>.
A'ERAGE
 Any e-traordinary or accidental
e-pense incurred during the voyage for
the preservation of the vessel, cargo, or
both, and all damages to the vessel and
cargo from the time it is loaded and the
voyage commenced until it ends and the
cargo unloaded.
GENERAL PARTICULAR
?as inured to the
common benefit and
profit of all persons
interested in the
vessel and cargo
?as not inured to the
common benefit and
profit of all persons
interested in the
vessel and her cargo.
4o be borne e'ually
by all of the interests
concerned in the
venture.
4o be borne alone by
the owner of the
cargo or the vessel,
as the case may be.
6e'uisites for the
right to claim
contribution<
!. Common
danger to the
vessel or
cargo#
2. 0art of the
vessel or cargo
was sacrificed
deliberately#
$. Sacrifice must
be for the
common safety
or for the
benefit of all#
&. Sacrifice must
be made by
the master or
upon his
authority#
). It must be not
be caused by
any fault of
the party
asking the
contribution#
+. It must be
successful, i.e.
resulted in the
saving of the
vessel or
cargo# and
;ecessary.
RIG#T OF INSURED IN CASE OF
GENERAL A'ERAGE
6747$AL $L7% 4he insured may
either hold the insurer directly liable for
the whole of the insured value of the
property sacrificed for the general
benefit, subrogating him to his own right
of contribution or demand contribution
from the other interested parties as soon
as the vessel arrives at her destination
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
4!
MEMORY AID IN COMMERCIAL LAW
78C7PTI94(%
!. After the separation of interests
liable to contribution
2. =hen the insured has neglected or
waived his right to contribution
FPA C0!1/e (F"ee F"o. P!",(c10!"
A-e"!+e)
A clause agreed upon in a policy of
marine insurance in which it is stated
that the insurer shall not be liable for a
particular average, such insurer shall be
free therefrom, but he shall continue to
be liable for his proportion of all general
average losses assessed upon the thing
insured. (Sec. !$+
ABANDON&ENT
 4he act of the insured by which, after a
constructive total loss, he declared the
relin'uishment to the insurer of his
interest in the thing insured. (Sec. !$>
 Re@1(/(,e/ 9o" -!0(*(,53
!. 4here must be an !ctual
relin'uishment by the person insured
of his interest in the thing insured
(Sec. !$>#
2. 4here must be a constructive total
loss (Sec. !$@#
$. 4he abandonment be neither artial
nor conditional (Sec. !&9#
&. It must be made within a reasonable
,ime after receipt of reliable
information of the loss (Sec. !&!#
). It must be 9actual (Sec. !&2#
+. It must be made by giving )otice
thereof to the insurer which may be
done orally or in writing (Sec. !&$#
and
:. 4he notice of abandonment must be
e-plicit and must specify the
particular cause of the abandonment
(Sec. !&&.
 E99ec,/3
!. It is e'uivalent to a transfer by the
insured of his interest to the insurer
with all the chances of recovery and
indemnity (4ransfer of Interest
(Sec.!&+
2. Acts done in good faith by those who
were agents of the insured in respect
to the thing insured, subse'uent to
the loss, are at the risk of the
insurer and for his benefit. (4ransfer
Af Agency(Sec.!&>
 If an insurer refuses to accept a valid
abandonment, he is liable upon an actual
total loss, deducting form the amount
any proceeds of the thing insured which
may have come to the hands of the
insured. (Sec.!)&
CO8INSURANCE
 A marine insurer is liable upon a partial
loss, only for such proportion of the
amount insured by him as the loss bears
to the value of the whole interest of the
insured in the property insured. (Sec.
!):
 =hen the property is insured for less
than its value, the insured is considered
a coDinsurer of the difference between
the amount of insurance and the value of
the property.
 Re@1(/(,e/3
!. 4he loss is partial#
2. 4he amount of insurance is less than
the value of the property insured.
 R10e/3
!. CoDinsurance applies only to marine
insurance
2. 5ogically, there cannot be coD
insurance in life insurance.
$. CoDinsurance applies in fire insurance
when e-pressly provided for by the
parties.
CO8INSURANCE REINSURANCE
A percentage in the
value of the insured
property which the
insured himself
assumes to act as
insurer to the e-tent
of the deficiency in
the insurance of the
insured property. In
case of loss or
damage, the insurer
will be liable only for
such proportion of
the loss or damage as
the amount of the
insurance bears to
the designated
percentage of the
full value of the
property insured.
(?ar $e&ie'
<aterials in
Co!!ercial La',
Situation where the
insurer procures a $
rd

party called the
reinsurer to insure
him against liability
by reason of an
original insurance.
Easically, reinsurance
is an insurance
against liability
which the original
insurer may incur in
favor of the original
insured.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
4"
MEMORY AID IN COMMERCIAL LAW
Cor)e <ira&ite, 2002
ed.)
='II. FIRE INSURANCE
 A contract by which the insurer for a
consideration agrees to indemnify the
insured against loss of, or damage to,
property by hostile fire, including loss by
lightning, windstorm, tornado or
earth'uake and other allied risks, when
such risks are covered by e-tension to
fire insurance policies or under separate
policies. (Sec. !+:
 P"e"e@1(/(,e/ ,o "eco-e"53
!. ;otice of loss ( must be immediately
given, unless delay is waived e-pressly or
impliedly by the insurer
2. 0roof of loss ( according to best
evidence obtainable. %elay may also be
waived e-pressly or impliedly by the
insurer
#OSTILE FIRE FRIENDL2 FIRE
Ane that escapes
from the place
where it was
intended to burn
and ought to be.
Ane that burns in a
place where it was
intended to burn
and ought to be
Insurer is liable Insurer is not liable
&e!/1"e o9 I)*e.)(,5
!. 9pen policy% only the e-pense
necessary to replace the thing lost or
in*ured in the condition it was at the
time of the in*ury
2. Valued policy% the parties are bound
by the valuation, in the absence of fraud
or mistake
No,e3 It is very crucial to determine
whether a marine vessel is covered by a
marine insurance or fire insurance. 4he
determination is important for 2 reasons<
!. $ules on constructi&e total loss
and a#andon!ent ( applies only
to marine insurance#
2. $ule on co,insurance ( applies
primarily to marine insurance#
$. $ule on co,insurance applies to
fire insurance only if e-pressly
agreed upon. (Co!!ercial La'
$e&ie'er, A)uedo A)#ayani,
0133 ed.)
ALTERATION AS A SPECIAL GROUND
FOR RESCISSION B2 INSURER
 Re@1(/(,e/3
!. 4he use or condition of the thing
is specifically limited or
stipulated in the policy#
2. Such use or condition as limited
by the policy is altered#
$. 4he alteration is made without
the consent of the insurer#
&. 4he alteration is made by means
within the control of the
insured#
%. 4he alteration increases the risk#
(Sec. !+> and
+. 4here must be a violation of a
policy provision. (Sec. !:9
F!008o98:1(0*()+ c0!1/e
 A clause in a fire insurance policy that
if the building or any part thereof falls,
e-cept as a result of fire, all insurance
by the policy shall immediately cease.
O,(o) ,o "e:1(0* c0!1/e
 A clause giving the insurer the option
to reinstate or replace the property
damaged or destroyed or any part
thereof, instead of paying the amount of
the loss or the damage.
 4he insurer, after electing to rebuild,
cannot be compelled to perform this
undertaking by specific performance
because this is an obligation to do, not
to give. 6emedy< Art. !!+:, ;CC.
='III. CASUALT2 OR ACCIDENT
INSURANCE
 Insurance covering loss or liability
arising from accident or mishap,
e-cluding those falling under other types
of insurance such as fire or marine. (Sec.
!:&
 C0!//(9(c!,(o)/3
!. Insurance a)ainst specified perils
'hich !ay affect the person andBor
property of the insured. (accident or
health insurance
 ,-amples< personal accident,
robberyMtheft insurance
2. Insurance a)ainst specified perils
'hich !ay )i&e rise to lia#ility on the
part of the insured for clai!s for
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
4#
MEMORY AID IN COMMERCIAL LAW
in>uries to or da!a)e to property of
others. (third party liability insurance
 Insurable interest is based on the
interest of the insured in the safety of
persons, and their property, who may
maintain an action against him in case of
their in*ury or destruction, respectively.
 ,-amples< workmen8s compensation,
motor vehicle liability
 In a third party liability (405
insurance contract, the insurer assumes
the obligation by paying the in*ured third
party to whom the insured is liable. 0rior
payment by the insured to the third
person is not necessary in order that the
obligation may arise. 4he moment the
insured becomes liable to third persons,
the insured ac'uires an interest in the
insurance contract which may be
garnished like any other credit. (0erla
Comapnia de Seguro, Inc vs. 6amolete,
29) SC6A &>:
 Aside from compulsory motor vehicle
liability insurance, the Insurance Code
contains no other provisions applicable
to casualty insurance. 4herefore, such
casualty insurance are governed by the
general provisions applicable to all types
of insurance, and outside of such
statutory provisions, the rights and
obligations of the parties must be
determined by their contract, taking into
consideration its purpose and always in
accordance with the general principles
of insurance law.
 In burglary, robbery and theft
insurance, the opportunity to defraud
the insurer ( the moral ha7ard ( is so
great that insurer have found it
necessary to fill up the policies with
many restrictions designed to reduce the
ha7ard. 0ersons fre'uently e-cluded are
those in the insured8s service and
employment. 4he purpose of the
e-ception is to guard against liability
should theft be committed by one having
unrestricted access to the property.
(3ortune Insurance vs. CA, 2&& SC6A 29>
R(+4, o9 ! ,4("* !",5 ()D1"e* ,o /1e ,4e
()/1"e"
!. Indemnity against liability ( A third
party in*ured can directly sue the
insurer.
2. Indemnity for actual loss or
reimbursement after actual payment by
the insured ( A third party has no cause
of action against the insurer (Sec. )$,
Eonifacio Eros. v. "ora, 29 SC6A 2+!.
 4he insurer is not solidarily liable with
the insured. 4he insurer8s liability is
based on contract# that of the insured is
based on torts. 3urthermore, the
insurer8s liability is limited by the
amount of the insurance coverage (0an
"alayan Insurance Corporation v. CA,
!>& SC6A )&.
“INTENTIONAL” -/. “ACCIDENTAL” AS
USED IN INSURANCE POLICIES
0. Intentional A Implies the e-ercise of
the reasoning faculties, consciousness
and volition. =here a provision of the
policy e-cludes intentional in*ury, it is
the intention of the person inflicting the
in*ury that is controlling. If the in*uries
suffered by the insured clearly resulted
from the intentional act of the third
person, the insurer is relieve from
liability as stipulated. (Eiagtan v. the
Insular 5ife Assurance Co. 5td., && SC6A
)>, !@:2
2. Accidental ( 4hat which happens by
chance or fortuitously, without intention
or design, which is une-pected, unusual
and unforeseen.
NO ACTION CLAUSE
 A re'uirement in a policy of liability
insurance which provides that suit and
final *udgment be first obtained against
the insured# that only thereafter can the
person in*ured recover on the policy.
(2uingon vs. %el "onte, 29 SC6A !9&$
=I=. CO&PULSOR2 &OTOR 'E#ICLE
LIABILIT2 INSURANCE (C&'LI)
 A species of compulsory insurance that
provides for protection coverage that
will answer for legal liability for losses
and damages for bodily in*uries or
property damage that may be sustained
by another arising from the use and
operation of motor vehicle by its owner.
 0urpose< 4o give immediate financial
assistance to victims of motor vehicle
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
50
MEMORY AID IN COMMERCIAL LAW
accidents andMor their dependents,
especially if they are poor regardless of
the financial capability of motor vehicle
owners or operators responsible for the
accident sustained (Shafer v. Nudge,
64C, !+: SC6A $>+.
 ClaimantsMvictims may be a
.passenger/ or a .$
rd
party/
 It applies to all vehicles whether
public and private vehicles.
;ote< It is the only compulsory insurance
coverage under the Insurance Code.
&e,4o* o9 co-e"!+e
!. Insurance policy
2. Surety bond
$. Cash deposit
P!//e)+e" A Any fareDpaying person
being transported and conveyed in and
by a motor vehicle for transportation of
passengers for compensation, including
persons e-pressly authori7ed by law or
by the vehicle8s operator or his agents to
ride without fare. (Sec. $:$HbI
T4("* P!",5 ( Any person other than the
passenger, e-cluding a member of the
household or a member of the family
within the second degree of
consanguinity or affinity, of a motor
vehicle owner or land transportation
operator, or his employee in respect of
death or bodily in*ury arising out of and
in the course of employment. (Sec.
$:$HcI
“No8F!10,” C0!1/e
 A clause that allows the victim (in*ured
person or heirs of the deceased to an
option to file a claim for death or in*ury
without the necessity of proving fault or
negligence of any kind.
 0urpose< 4o guarantee compensation or
indemnity to in*ured persons in motor
vehicle accidents.
 6ules<
!. 4otal indemnity D ma-imum of 0),999
2. 0roofs of loss D
a. 0olice report of accident#
b. %eath certificate and evidence
sufficient to establish proper payee#
c. "edical report and evidence of
medical or hospital disbursement.
$. Claim may be made against one motor
vehicle only
&. 0roper insurer from which to claim D
a. In case of an occupant< Insurer
of the vehicle in which the occupant is
riding, mounting or dismounting from#
b. In any other case< Insurer of the
directly offending vehicle. (Sec. $:>
 4he claimant is not free to choose
from which insurer he will claim the .no
fault indemnity/ as the law makes it
mandatory that the claim shall lie
against the insurer of the vehicle in
which the occupant is riding, mounting
or dismounting from. 4hat said vehicle
might not be the one that caused the
accident is of no moment since the law
itself provides that the party paying may
recover against the owner of the vehicle
responsible for the accident. (0erla
Compania de Seguros, Inc. v. Ancheta,
!+@ SC6A !&&
 4his noDfault claim does not apply to
property damage. If the total indemnity
claim e-ceeds 0),999 and there is
controversy in respect thereto, the
finding of fault may be availed of by the
insurer only as to the e-cess. 4he first
0),999 shall be paid without regard to
fault. (Prof. /e Leon, p. "02)
 4he essence of the noDfault indemnity
insurance is to provide victims of
vehicular accidents or their heirs
immediate compensation although in
limited amount, pending final
determination of who is responsible for
the accident and liable for the victims
in*uries or death. (I#id.)
SPECIAL CLAUSES
A. A1,4o"(Ee* D"(-e" C0!1/e
 A clause which aims to indemnify the
insured owner against loss or damage to
the car but limits the use of the insured
vehicle to the insured himself or any
person who drives on his order or with
his permission (Cillacorta v. Insurance
Commissioner
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
51
MEMORY AID IN COMMERCIAL LAW
 4he re'uirement that the person
driving the insured vehicle is permitted
in accordance with the licensing laws or
other laws or regulations to drive the
motor vehicle (licensed driver is
applicable only if the person driving is
other than the insured.
B. T4e9, C0!1/e
 A clause which includes theft as among
the risks insured against.
 =here the car is unlawfully and
wrongfully taken without the owner8s
consent or knowledge, such taking
constitutes theft, and thus, it is the
.theft clause/ and not the .authori7ed
driver clause that should apply (0alermo
v. 0yramids Ins., !+! SC6A +::.
C. Cooe"!,(o) C0!1/e
 A clause which provides in essence that
the insured shall give all such
information and assistance as the insurer
may re'uire, usually re'uiring
attendance at trials or hearings.
==. SURET2S#IP
 An agreement whereby a surety
guarantees the performance by the
principal or obligor of an obligation or
undertaking in favor of an obligee. (Sec.
!:)
 It is essentially a credit
accommodation.
 It is considered an insurance contract
if it is e-ecuted by the surety as a
vocation, and not incidentally. (Sec. 29
 =hen the contract is primarily drawn
up by ! party, the benefit of doubt goes
to the other party (insuredMobligee in
case of an ambiguity following the rule
in contracts of adhesion. Suretyship,
especially in fidelity bonding, is thus
treated like nonDlife insurance in some
respects.
N!,1"e o9 0(!:(0(,5 o9 /1"e,5
!. Solidary#
2. 5imited to the amount of the bond#
$. It is determined strictly by the terms
of the contract of suretyship in
relation to the principal contract
between the obligor and the obligee.
(Sec. !:+
SURET2S#IP PROPERT2
INSURANCE
Accessory contract 0rincipal contract
$ parties< surety,
obligor and oblige
2 parties< insurer and
insured
Credit
accommodation
Contract of
indemnity
Surety can recover
from principal
Insurer has no such
right# only right of
subrogation
Eond can be
cancelled only with
consent of obligee,
Commissioner or
court
"ay be cancelled
unilaterally either by
insured or insurer on
grounds provided by
law
6e'uires
acceptance of
obligee to be valid
;o need of
acceptance by any
third party
6iskDshifting device#
premium paid being
in the nature of a
service fee
6iskDdistributing
device# premium paid
as a ratable
contribution to a
common fund
==I. LIFE INSURANCE
 Insurance on human lives and insurance
appertaining thereto or connected
therewith which includes every contract
or pledge for the payment of
endowments or annuities. (Sec. !:@
 7()*/3 (?ar $e&ie' <aterials in
Co!!ercial La', Cor)e <ira&ite, 2002
ed.)
!. 9rdinary Life, 6eneral Life or 9ld
Line Policy D Insured pays a fi-ed
premium every year until he dies.
Surrender value after $ years.
2. 6roup Life ( ,ssentially a single
insurance contract that provides
coverage for many individuals.
,-amples< In favor of employees,
.mortgage redemption insurance/.
$. Li!ited Pay!ent Policy ( insured
pays premium for a limited period.
If he dies within the period, his
beneficiary is paid# if he outlives the
period, he does not get anything.
&. 7ndo'!ent Policy ( pays premium
for specified period. If he outlives
the period, the face value of the
policy is paid to him# if not, his
beneficiaries receive the benefit.
). Ter! Insurance ( insurer pays once
only, and he is insured for a
specified period. If he dies within
the period, his beneficiaries
benefits. If he outlives the period,
no person benefits from the
insurance.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
52
MEMORY AID IN COMMERCIAL LAW
+. Industrial Life D life insurance
entitling the insured to pay
premiums weekly, or where
premiums are payable monthly or
oftener.
&o",+!+e Re*e.,(o) I)/1"!)ce
 A life insurance taken pursuant to a
group mortgage redemption scheme by
the lender of money on the life of a
mortgagor who, to secure the loan,
mortgages the house constructed from
the use of the proceeds of the loan, to
the e-tent of the mortgage indebtedness
such that if the mortgagor dies, the
proceeds of his life insurance will be
used to pay for his indebtedness to the
lender assured and the deceased8s heirs
will thereby be relieved from paying the
unpaid balance of the loan. (2reat
0acific 5ife Assurance Corp. vs. Court of
Appeals, $!+ SC6A +::
LIABILIT2 OF INSURER IN CERTAIN
CAUSES OF DEAT# OF INSURED
!. Suicide
 Insurer is liable in the following cases<
!. If committed after t'o years
from the date of the policy8s
issue or its last reinstatement#
2. If committed in a state of
insanity regardless of the date of
the commission unless suicide is
an e-cepted peril. (Sec. !>9DA
$. If committed after a shorter
period provided in the policy
 Any stipulation e-tending the 2Dyear
period is null and void.
2. At the hands of the law (,.g. by legal
e-ecution
 It is one of the risks assumed by the
insurer under a life insurance policy in
the absence of a valid policy e-ception.
(Vance,p.5"2 cited in de Leon, p. 00")
No,e3 Nustice Citug believes that death
by suicide (if the insured is sane or at
the hands of the law obviates against
recovery as being more in consonance
with public policy and as being implicit
under Section >:, IC0. (Pandect of
Co!!ercial La' and Curisprudence,
011" ed. P. 010)
$. Killin !y the !eneficiary
6747$AL $L7% 4he interest of a
beneficiary in a life insurance policy
shall be forfeited when the beneficiary is
the principal accomplice or accessory in
willfully bringing about the death of the
insured, in which event, the nearest
relative of the insured shall receive the
proceeds of said insurance if not
otherwise dis'ualified. (Sec. !2
78C7PTI94(%
!. Accidental killing
2. SelfDdefense
$. Insanity of the beneficiary at the
time he killed the insured
 If the premiums paid came from
con*ugal funds, the proceeds are
considered con*ugal. If the beneficiary is
other than the insured8s estate, the
source of premiums would not be
relevant. (%el Cal v. %el Cal, 2@ 0hil )$&
 4he measure of indemnity in life or
health insurance policy is the sum fi-ed
in the policy e-cept when a creditor
insures the life of his debtor. (Sec. !>$
IS T#E CONSENT OF T#E BENEFICIAR2
NECESSAR2 TO T#E ASSIGN&ENT OF A
LIFE INSURANCE POLIC2F
 It depends. If the designation of the
beneficiary is irrevocable, the
beneficiary8s consent is essential
because of his vested right. If the
designation is revocable, the policy may
be assigned without such consent
because the beneficiary only has a mere
e-pectancy to the proceeds. (The
Insurance Code of the Philippines
Annotated, Hector de Leon, 2002 ed.)
C!/4 S1""e)*e" '!01e
 As applied to a life insurance policy, it
is the amount the insured in case of
default, after the payment of at least $
full annual premiums, is entitled to
receive if he surrenders the policy and
releases his claims upon it.
LIFE INSURANCE FIRE INSURANCE
Contract of
investment not of
indemnity
Contract of indemnity
Calued policy Apen or valued policy
"ay be transferred
or assigned to any
person even if he
has no insurable
interest
4he insurable
interest of the
transferee or
assignee is essential
Consent of insurer is Consent of insurer
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+
San Beda College of Law
53
MEMORY AID IN COMMERCIAL LAW
not essential to
validity of
assignment
must be secured in the
absence of waiver
Contingency that is
contemplated is a
certain event, the
only uncertainty
being the time when
it will take place
Contingency insured
against may or may
not occur
A longDterm
contract and cannot
be cancelled by the
insurer
"ay be cancelled by
either party and is
usually for a term of
one year
Eeneficiary is under
no obligation to
prove actual
financial loss
Insured is re'uired to
submit proof of his
actual pecuniary loss
as a condition
precedent to
collecting the
insurance.
==II. 'ARIABLE CONTRACT
 Any policy or contract on either a group
or individual basis issued by an insurance
company providing for benefits or other
contractual payments or values
thereunder to vary so as to reflect
investment results of any segregated
portfolio of investment.
==III. INSURANCE CO&&ISSIONER
 "ain agency charged with the
enforcement of the Insurance Code and
other related laws.
 F1)c,(o)/3
!. A%N1%ICA4A6BMO1ASIDN1%ICIA5
a. ,-clusive original *urisdiction (
Any dispute in the enforce!ent of any
policy issued pursuant to Chapter CI
(C"C5I. (Sec. $>), par. 2
b. Concurrent original *urisdiction
(with the 64C ( =here the ma-imum
amount involved in any single claim is
0!99,999 (Sec. &!+, e-cept in case of
maritime insurance which is within the
e-clusive *urisdiction of the 64C. (E0
!2@# admiralty J maritime *urisdiction
 =here the amount e-ceeds
0!99,999, the 64C has
*urisdiction.
 4he Insurance Commissioner has no
*urisdiction to decide the legality of a
contract of a)ency entered into between
an insurance company and its agent. 4he
same is not covered by the term .doing
or transacting insurance business/ under
Sec 2, IC0, neither is it covered by Sec.
&!+ of the same Code which grants the
Commissioner ad*udicatory powers
(0hilippine American 5ife Insurance Co.
v. Ansaldo, 2$& SC6A )9@.
2. A%"I;IS46A4IC,M6,215A4A6B
a. ,nforcement of insurance laws
b. Issuance, suspension or
revocation of certificate of
authority
c. 0ower to e-amine books and
records, etc.
d. 6uleDmaking authority
e. 0unitive
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON: Jayson O’S Ramos EDP: ea!ri" I. Ramos S#JECT HEADS:
$ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario
(Trans0or!a!ion La*s+,
S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel
Ga!.ula (an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+